I am thankful because after a year long stretch writing books, putting together seminars, and doing my taxes, for the first time in a long time I have the time to do an economics piece.
This will be short and nothing you don't already know, but the numbers are shocking when you put them together. And what we'll be looking at today is the numbers of dollars floating around in the economy, versus the GDP it presumably produces.
In short, I took the monetary base (the narrowest measure of money in circulation) and divided it by GDP. Ideally this ratio should remain flat as it is not the amount of money circulating in the economy that produces GDP, but the industriousness and entrepreneurial hunger of its citizens. Printing off money only leads to inflation, and truly (bar the inflationary or deflationary effects money supply shocks cause the economy) is irrelevant to the long term, fundamental productive capacity to this or any other economy.
However, politicians are stupid and they think that in making "Money Printer Go BRRRR" we can print ourselves out of economic/financial crises, when all we really do is spread the misery around to all Americans through higher inflation and a diluted currency. And so to measure this delusion I wanted to see how many dollars we are printing into circulation relative to the GDP we produce using those dollars. And the chart is nothing you wouldn't expect.
Starting in 1959 we used one dime to produce one dollar of GDP. This slowly decreased over time to a nickel in the 1970's where it stay until 2008.
Why 2008? Because this is when the financial crisis hit and then President George Bush Jr. (among government and Fed economists) decided it was a good idea to make Money Printer Go BRRR and double the money supply IN TWO QUARTERs. The monetary base jumped from $868 billion to $1.6 trillion just 180 days.
The money printer continued to go BRRRR under the in-coming Obama administration where Barry took the monetary base from $1.6 trillion to almost $4 trillion, more than quadrupling the money supply from it's 2008 base.
As the economy slowly recovered under the late and last term of the Obama administration, they pulled back on the money supply, lowering the monetary base to $3.6 trillion. President Trump continued this trend further lowering it to $3.3 trillion, the lowest it had been in nearly a decade.
But then a pretty serious cold hit the world, people lost their communal shit, we shut down the economies of the world, which once against prompted economists, governments, presidents and parliaments to do what they do best - make Money Printer Go BRRRRR again. And in that time President Trump added nearly 2 trillion to the monetary base, increasing the money supply by 56% in just one year.
When you tally up the numbers, we increased the money supply by almost 600%, but GDP only increased by 41% during that same time. And so what used to take a nickel to produce $1 in GDP, now takes a full quarter, implying a real inflation rate of 500%.
Now, of course, people will look and say, "I don't see 500% inflation!!!! Milk is still $2/gallon. Gas was just at a $1/gallon last year! And my video games are still only $55 for a new release."
Which is all true.
But the inflation goes where the financial system channels it, and the banking system lends money out to only some key areas, which have all seen prices go up by around 500%.
The stock market is up 400% from its 2008 lows. Housing about the same. Tuition is only up around 200-300% depending on which type of school you're going to. So are rents. Crypto-currencies and precious metals have certainly taking an interesting jump, haven't they? And I can't believe you idiots are actually paying $36,000 for the average price of a new car.
Yes, my fine, college-educated Millennial. You're right. The price of a pound of cheese is still 45 cents.
Oh...but what's that you say? You live at home because you can't afford the $2,500/month rent at the age of 33? Well, good thing we made money printer go BRRR and you got all that "free money" under Obama.
To regular readers, this observation is nothing new. We have an IQ above room temperature and in having said IQ we know printing off pieces of paper does not magically lead to increased economic production. It only dilutes the currency and lowers our purchasing power. But I am getting mighty sick and tired of the completely ignorant, idiotic, and uneducated Americans who cannot grasp this simple concept. The average college-educated 20 something who on one hand demands the government pay for everything and make sure nobody suffers any consequences of their stupid economic decisions by printing money, but then bitch and whine about the price of housing, rent, health care, tuition, transportation, etc, when that money finally settles where it was going to settle.
You people, and by that I mean the general American public, are fucking retards who deserve all the economic pain, malaise, debt, and stress that comes with it. And I find no greater joy than watching boomers take out reverse mortgages on their homes because they didn't save up for retirement, millennials panhandle for the taxpayer to bail them out of their sociology degree, and Gen X'ers constantly drawing equity from their artificially inflated home prices to buy trinkets to remain popular as if it were still middle school.
You will die impoverished, angry, and above all else confused because you didn't take the time to understand basic economics.
You can hire Aaron at:
Excellent Post.
ReplyDeleteAll without using the term 'velocity'. Oh, yah, the politicians are stupid: they just keep winning and living large and enjoying the sadism. The stupid of the rank and file, it berns. Most importantly, the finger is anatomically incorrect. Flip yourself off with your left hand and see what I mean. Could flip the image and move 'Consulting' to the right. Congrats on being able to slow down. This is my second day without my garbage caffeine and sugar drink. I plan to sin against my temple tomorrow. The big question for muh USA: big fire or slow burn? I think history says slow burn. I would prefer total lawlessness. How hard will cucks cuck? That is an economic question. I greatly overestimated the human value of Americans. It's the domesticated that burn slow. I am on the edge of my seat. Yah, 2021!
ReplyDeleteI see a rocket ship launching with the dollar to GDP ratio over the past year. Yep, real estate went insane (bubblelicious) in my neck of the woods. Guess what, MOAR money is going to be printed in the coming months. Pffff, we just print money out of thin air, no worries mon... Japan has been printing money for 30 years, their public debt to GDP is only about 270%, no worries mon. It will all come crashing down (worldwide) and nobody knows when?
ReplyDeleteShould be fun.
Here's the real question; when are food prices going to catch up? That will be the real death blow.
ReplyDeleteWords of wisdom.
ReplyDeleteAbsolutely correct.
ReplyDelete"In 5000 years of human history there is no record of a kingdom printing the currency of the realm at a faster pace than the growth of the economy without generating inflation."
-- Harley Bassman, Morgan Stanley's iconic "Convexity Maven"
However, this money is still reaching into the food and restaurant. I remember $5.99 lunch specials at my Mexican taqueria places not that many years ago. Now most are at least $6.99 or more depending upon the item. I've found one where they throw in a drink with it, so that's a good value.
ReplyDeleteI still remember a #1 burger, fries, drink at a Whataburger in my part of the country being $3.99 in 2003 or so. That same meal is now at least $6.60 more or less plus tax. It's almost better to forgo the drink and get a lunch special.
The packaging is slowly getting smaller at the grocery store for chips, cookies, nuts, and whatever else you can check.
You might check out the commentary at Hoisington Management, https://hoisington.com/economic_overview.html . Lacy Hunt has been right about interest rates for a long time, while almost everyone else has been wrong. My opinion about house prices and stock prices is that they will come down ,just wait. The government can’t bail out everybody forever. Lacy Hunt discusses “money printing” in his earlier posts in 2020, you might read back to some earlier posts for a fuller picture.
ReplyDelete"... when all we really do is spread the misery around to all Americans through higher inflation and a diluted currency ..."
ReplyDeleteSince the 1970s, American wages have stayed relatively stagnant while the dollar has sought ever-depressing levels closer to zero.
The net effect of this is that people are working for the same money while the goods they need become increasingly expensive, leaving them in a situation where they become more dependent on centralised distribution because it's the remaining option for keeping their living costs down.
The so-called "Great Reset" is therefore nothing new, being just another iteration of an obsolescent neo-liberal capitalism layered on a kleptocratic democratic system that seeks to turn everyone who lives on an income into some kind of feudal serf on some kind of a feudal company farm.
Their "great thinkers" haven't though this through: when terrorism comes from above, so does terrorism come from below. They really are not going to like how that "as above, so below" thing of theirs can get flipped around into open revolution against them.
But as Joseph Heller may have asked in this financial Catch-22 situation, where are the great bankers of yesteryear?
To respectively disagree --
ReplyDelete"In short, I took the monetary base (the narrowest measure of money in circulation) and divided it by GDP. Ideally this ratio should remain flat as it is not the amount of money circulating in the economy that produces GDP, but the industriousness and entrepreneurial hunger of its citizens. Printing off money only leads to inflation, and truly (bar the inflationary or deflationary effects money supply shocks cause the economy) is irrelevant to the long term, fundamental productive capacity to this or any other economy."
Will money printing create inflation yes. But the money printing alone is not the only factor. There is actually two -- money printing AND money velocity.
As it is right now where is most of the money printing going? It is getting dumped to the first tier banks who lacking other viable lending opportunities are shoving the money back to the Fed in the form of TBill purchases. That little that trickles down right now is not being spent. The People have been spooked by a combo of CoVid and recession. They are either saving money or paying down their debts. Savings rate last quarter was 17%, 4x times higher than normal. There has not been a big spend in Q4 as the latest Commerce numbers indicate. eg Xmas was a piker for spending in 2020.
"However, politicians are stupid and they think that in making "Money Printer Go BRRRR" we can print ourselves out of economic/financial crises, when all we really do is spread the misery around to all Americans through higher inflation and a diluted currency. And so to measure this delusion I wanted to see how many dollars we are printing into circulation relative to the GDP we produce using those dollars. And the chart is nothing you wouldn't expect."
Just watch, the $1400, er $2000, er $??? will get shoved into reducing personal balance sheets or shoved under the mattress. It will not stimulate the economy. Most likely it will smother the economy with more debt. The most misery will come to those that will be stupid enough to take that money and spend it on a new car,
Till the money velocity is up, way up such that to hold dollars is a fools errand the helicopter money is just an anchor on the economy.
A good read. The sad part is that basic economics really isn't that hard to teach or explain. It can be taught to an 8 year old.
ReplyDeleteThe school system in the US purposely doesn't teach it because the banking cartel and wall street investors make a lot of money from money printing. Since people are forced to put their money into the stock market to hedge against inflation, stock brokers get to make money off of them.
The stupid people who demand free everything and don't save any money, credit card companies and banks make money off of them. Since they are part of inflating the price of everything and can't afford what they want. All their purchases are debt and they pay interest their entire lives to the top 1%.
When my stocks portfolio goes up say 15% in total during the year. I think to my self, the dollar lost anywhere from 5 - 10% of it's value and my actual net gain was around 5%.